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No. of Recommendations: 4
Using the Quicken stock evaluator I did a quick calculation of CNXS intrinsic value. This is the value that Graham/Buffett use to assess valuation in determining what value a company is worth based on earning projections.

Assumptions: 17.5% growth for next ten years; 10% discount rate, base earnings of $8.5m.

The intrinsic value is $30.34 a share which means the stock at $14.52 is still 50% under its intrinsic value.

This seems to provide a very safe basis for future investment. At its current price it only has grow earnings 8% to retain this price.

Macklad
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hrmmm... definitely something to mull over. Thanks for the info!

-A
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Two caveats on that, Macklad:

First, consistent growth of 17.5% sounds overly optimistic to me. Where do you get this number?

Second, with the stock market on average returning 10.5%, assigning a 10% discount to a small-cap stock, which on average will be more volatile than a large-cap, also seems strange. I would raise that at least to 10.5% to match the market. 11% or 12% would be more reasonable and I know several Fools who routinely use 15% for small-caps.

Ditty
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Hi Ditty

The growth rate comes from analyst estimates for the next five years according to the Quicken site. I also looked at Yahoo and saw a similar number: 16.3%.

Even using the more conservative estimates of 12% discount rate and 15% growth, you get an instrinsic value of $21.53. That means CNXS is still a nice 33% discount to instrinsic value. Overall, I think it would be hard to argue this is not a good value right now.

Based on their dominance of their product category and the growing value of their Breathe Right brand I think they can easily grow earnings in excess of of 15% even without any new product launches. Any new products could boost that even more.

One interesting short to medium term trend that may help earnings is the decline in the dollar. This will help their sales numbers in Europe and Japan where they have been expanding their distribution system. The sales outside the US were growing in the 25-30% range versus US growth of 15%.

Overall, I think CNS has very good growth prospects and solid fundamentals (no debt, good cash flow, market dominance). I bought at $12.00 and may expand that depending on the next quarter report.

Macklad
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Thanks, Macklad. That does indeed provide a nice margin of safety. 33% may not be super, but it is not easy to find even that amount in the current market.

Ditty
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